The travel industry, like many others, has a whole host of connected groups and affiliates surrounding it. The question is – how can these affiliate groups better understand and address the different needs of their one common customer, the traveler? More than 900 leaders in travel and tourism met in New York’s iconic Lincoln Center for the Skift Global Forum to discuss just that. It was a chance to share insights from across the industry, from cruise lines to premier hotels to airlines, and many of the largest brands in travel stepped on stage to share their plans for the future.
Customer centricity was also a theme of my comments when I had the privilege of sharing the big stage with Skift Research Director Luke Bujarski. Together we shared a snapshot of Skift’s research into airline merchandising, or the ability to create data-driven, customized offers for airline customers – research which has been commissioned by us at Amadeus.
Amadeus and Skift focused our comments on something that’s important to many travelers, regardless of why they’re taking a trip: airline pricing. And we started with a story from airline history. People Express Airlines grew from nothing in 1980 to become the 5th largest carrier in the United States, challenging the existing major carriers with flat low fares. The majors responded not just with price cuts to their fares, but by stepping forward the price segmentation techniques that allow customers to purchase airfares more in line with their price sensitivity, meaning that those customers needing less expensive fares were able to buy them. People Express kept its pricing flat. Suffice to say, that being out-priced was the main reason the airline disappeared at the end of 1986.
People Express exited the market, and the pricing techniques employed by the major airlines evolved into modern Revenue Management (RM). Not only has RM proliferated to airlines around the world, but hotels, car rental companies, and cruises – the other attendees at the Forum—all adopted the same concepts. Customers benefited from the availability of lower fares, and airlines and other firms benefited by better matching their prices to customer demand.
It reminds me of a story from one of my favorite recent books, Messy: The Power of Disorder to Transform Our Lives, by The Undercover Economist, Tim Harford. Harford relates the story of the London tube strike in 2014 that forced commuters to find alternate routes to work. It was a major disruption to their lives. Everyone had to find a different way to and from work. But when the strike ended, a study found that around 5% of commuters, that’s about 125,000 people, had found a better way to work than their route before the strike. They did not return to their pre-strike route. And, in total, they saved about 350,000 hours commute time per year*. Like the challenge created by People Express, the tube strike caused a lasting improvement to the process it disrupted.
Of course, it’s not necessary to have a tube strike to improve commuters’ lives. The researchers speculated that London’s complex urban geography had obfuscated the commuters’ optimal routes. So sometimes it might be helpful to zoom up and ask questions about how things could be done better. That’s what Skift did in its research into airline merchandising, and we hope you find the results interesting when they’re published in late October.
*Tim Harford told the story; I used the original study and London Underground data for the numbers.
Originally published on the Amadeus corporate blog.